Overall Audit Plan
and Audit Program
Chapter 13
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Learning Objective 1
Use the five types of audit tests
to determine whether financial
statements are fairly stated.
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Types of Tests
 Risk assessment procedures
 Further audit procedures
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Further Audit Procedures
and the Audit Risk Model
Audit risk
model
Tests of
controls
AAR
IR × CR
= PDR
Substantive
Analytical
tests of
+
+ procedures +
transactions
Tests of
details of
balances
Sufficient
appropriate
= evidence
per GASS
Further audit procedures
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Risk Assessment Procedures
A major part of these procedures are
done to obtain an understanding
of internal control.
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Role of All Audit Tests in the
Sales and Collection Cycle
Sales
Accounts
Cash in
Receivable
Bank
Sales
Cash receipts
transactions
transactions
Audited by
TOC, STOT, and AP
Ending
balance
Audited by
TOC, STOT, and AP
Ending
balance
Audited by AP and TDB
TOC + STOT + AP + TDB
= Sufficient appropriate evidence per GAAS
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Learning Objective 2
Select the appropriate types
of audit tests.
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Relationship Between Further Audit
Procedures and Evidence


Tests of controls
Substantive tests of transactions
Analytical procedures
Tests of details of balances
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

Observation
Documentation
Confirmation
Further Audit Procedures
Physical
examination
Type of Evidence


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Relationship Between Further Audit
Procedures and Evidence





Tests of details of balances


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Recalculation
Tests of controls
Substantive tests of transactions
Analytical procedures
Analytical
Procedures
Further Audit Procedures
Inquiries of
the Client
Reperformance
Type of Evidence



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Acceptable
assurance
No
assurance
AUDIT ASSURANCE
Audit Assurance at Different Levels of
Internal Control Effectiveness
C3
C2
Audit assurance
from control risk
assessment and
tests of control
C1
Audit assurance
from substantive
tests
A
C
B
INTERNAL CONTROL EFFECTIVENESS
Weak control
Strong control
Reliance on controls: C3 – None, C2 – Some, C1 – Maximum
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Learning Objective 3
Understand how information
technology affects audit testing.
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Impact of Information
Technology on Audit Testing
SAS 80 (AU 326) and SAS 109 (AU 319)
provide guidance for auditors of entities
that transmit, process, maintain, or access
significant information electronically.
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Impact of Information
Technology on Audit Testing
Computer assisted audit techniques may be
used to test automated controls or data.
Reports produced by IT may be used to test
the effectiveness of IT general controls.
 Program change controls
 Access controls
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Learning Objective 4
Understand the concept of
evidence mix and how it
should be varied in
different circumstances.
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Variations in Evidence Mix
Tests
of
Controls
Substantive
Tests of
Transactions
Analytical
Procedures
Tests of
Details of
Balances
Audit 1
E
S
E
S
Audit 2
M
M
E
M
Audit 3
N
E
M
E
Audit 4
M
E
E
E
Amount of testing: Extensive, Medium, Small, None
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Learning Objective 5
Design an audit program.
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Audit Program
Part 1:
Tests of controls and substantive
tests of transactions
Part 2:
Analytical procedures
Part 3:
Tests of details and balances
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Tests of Controls and Substantive
Tests of Transactions
1. Apply the transaction-related audit objectives
to the class of transactions being tested.
2. Identify key controls that should reduce
control risk for each audit objective.
3. Develop appropriate tests of controls.
4. Design substantive tests of transactions.
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Methodology for Designing Controls
and Substantive Tests
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Four-Step Approach to Designing
Control and Substantive Tests
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Methodology for Designing Tests of
Balances – Accounts Receivable
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Learning Objective 6
Compare and contrast trasnsaction-related
audit objectives with balance-related and
presentation and disclosure-related audit
objectives.
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Relationship of Transaction-related
Audit Objectives to Balance-related
Audit Objectives
Transactionrelated
Audit
Objective
Balancerelated
Audit
Objective
Nature of
Relationship
Existence
Completeness
Accuracy
Posting and
summarization
Classification
Timing
Existence or completeness
Completeness or existence
Accuracy
Detail tie-in
Direct
Direct
Direct
Direct
Classification
Cutoff
Realizable value
Rights and obligation
Direct
Direct
None
None
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Relationship Among Five Key
Evidence-related Terms
 Phases of the audit process
 Audit objectives
 Types of tests
 Evidence decisions
 Types of evidence
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Phases of the Audit Process
I.
Plan and design an audit approach.
II. Perform tests of controls and
substantive tests of transactions.
III. Perform analytical procedures and
tests of details of balances.
IV. Complete the audit and issue an
audit report.
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Audit Objectives
 Transaction-related
 Balance-related
 Presentation and disclosure-related
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Types of Tests
 Risk assessment procedures
 Tests of controls
 Substantive tests of transactions
 Analytical procedures
 Tests of details of balances
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Evidence Decisions
 Audit procedures
 Sample size
 Items to select
 Timing
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Types of Evidence








Documentation
Inquiries of the client
Analytical procedures
Observation
Reperformance
Recalculation
Physical examination
Confirmation
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Learning Objective 7
Integrate the four phases
of the audit process.
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Summary of the Audit Process
Plan and design
Phase I an audit approach
Phase II
Perform tests of
controls and
substantive tests
of transactions
Perform analytical
procedures and
Phase III
tests of details
of balances
Phase IV
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Complete the
audit and issue
an audit report
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Summary of the Audit Process:
Phase I
Accept client and perform initial planning
Understand the client’s business and industry
Assess client’s business risk
Perform preliminary analytical procedures
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Summary of the Audit Process:
Phase I
Set materiality and assess acceptable
audit risk and inherent risk
Understand internal control and assess control risk
Gather information to assess fraud risks
Develop overall audit plan and audit program
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Summary of the Audit Process:
Phase II
Plan to reduce assessed
level of control risk?
No
Yes
Perform tests of controls
Perform substantive tests of transactions
Assess likelihood of misstatements in
financial statements
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Summary of the Audit Process:
Phase III
Low
Medium
High or
unknown
Perform analytical procedures
Perform tests of key items
Perform additional tests
of details of balances
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Summary of the Audit Process:
Phase IV
Perform additional tests for
presentation and disclosure
Accumulate final evidence
Evaluate results
Issue audit report
Communicate with audit
committee and management
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End of Chapter 13
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